Are You Stocked Up On Physical Gold in 2016 Before The Supply Runs Out?

Do You Have Your Physical Gold Yet? Not Paper gold but real gold that you can hold in your hand. The US Mint ran out of gold and suspended sales for the rest of 2015.

China, Russia and India are buying tons of gold at these fire sale reduced prices.

For the trading week ending on 6 November, 45 tons of gold was withdrawn out of the Shanghai Gold Exchange (SGE) vaults, which is the equivalent of the wholesale gold demand in China. SGE withdrawals year to date have reached an incredible 2,210 tones, exceeding the full year record of 2,197 tones which was set in 2013. With the Chinese gold market having almost two months worth of trading remaining, it is estimated that SGE withdrawals will reach over 2,600 tones.

The Chinese Physical Gold Market

For a comprehensive discussion of the relationship between Chinese wholesale gold demand and SGE withdrawals see The Mechanics Of The Chinese Domestic Gold Market.

It still remains to be seen whether the Chinese gold import is going to be higher than it was in 2013. China imported 1,507 tons of standard gold bars two years ago. I estimate that China is on track in 2015 to import approximately 1,400 tones. Recycled gold has supplied more of the SGE withdrawals this year compared to 2013, which replaces gold import in part.

I believe this subject does deserve more debate. Also, doesn’t there appear to be a contraction in the huge gap between demand data and SGE withdrawals versus numbers complex?

This is even more. There are some analysts speculating that the PBOC is secretly buying the ‘surplus’ gold imported to China. I do not agree, and I believe the WGC agrees with me, according to this from them in 2014:

Mined Gold and Exported Gold

Only recycled gold (i.e. scrap), imported gold or domestically mined gold can supply SGE withdrawals. Since China is only one of a few countries where its gold trade data isn’t disclosed, we have to estimate gold import from China from the data that gold exporters provide, like from Australia, Hong Kong, Switzerland and the UK. The foreign trade statistics from these countries show that during 2015’s first three quarters, China had net imports of over 1,032 tons of gold. The China Gold Association also reports that the domestic mining output in China has been around 357 tones. Export of this output is prohibited. Not counting scrap supply China’s estimated physical gold supply was 1,389 tons during 2015’s first nine months. However, it was disclosed by the World Gold Council that Chinese gold demand in Q1-Q3 was at 736 tones. For several years, there has been over twice the amount of physical gold that has been supplied to China versus what is present as demand for the average gold investor from the World Gold Council, which is the authority on gold.

How could there be that much gold being supplied into China without someone purchasing it and therefore it being genuine demand? That isn’t possible. Chinese gold demand that the World Gold Council (WGC) has disclosed is fallacious.

Chinese Domestic Physical Gold Demand

Numerous arguments have been presented by Western consultancy firms to try to explain the difference between Chinese consumer gold demand and SGE withdrawals. However, none have proven they are complete. The first explanation was that the difference was caused by industrial demand WGC 2013), the next was that the stock movement change explained the difference (GFMS 2013), next round tripping was discussed (WGC 2014) and then gold leasing was next (WGC 2014), following by official purchases (WGC 2013), and then recycled gold (GFMS 2015, CPM Group 2014), and that Chinese gold export had been tested for fooling gold investors (PMI 2015). Some of the arguments above are partially true. However, they don’t fully the entire difference, which is 2,500 tones at least.

Is this odd discrepancy ever investigated by the mainstream media? Of course not. They think of gold as merely a pet rock. No one cares whether 2,500 tons worth of gold has seemed to disappeared in a black hole in some area of China. Also, China just happens to be the world’s second largest economy that has said that the US dollar as the world’s reserve currency needs to be replaced. The global economy is also still struggling in its attempt to recover from the largest financial crisis of recent times through printing money. The only thing that appears to do is buy some time. However, Western media refuses to make these connections.

Also note, that none of the above arguments have been described carefully by the consultancy firms presenting them. A couple of sentences in a World Gold Council report was sufficient for convincing the Financial Times to copy and paste its conclusion, although it was factually incorrect. The firms never thoroughly describes the processes or round tripping or gold leasing. If you can explain to me how SGE withdrawals have been inflated by 2,500 tons by gold leasing, I would be glad to do further investigations on gold flowing through the SGE. The most recent sign about this topic from mainstream analysts was communicated via a tweet. This 140 character message managed to set in motion a new belief that the demand numbers for Chinese gold are perfectly sensible.

Central Bank Physical Gold Purchases

This includes central bank purchases. However, when looking at Q2 2015 official total gold demand it shows 127.9 tones (and 175 tones in Q3). The World Gold Council apparently didn’t include the PBOC 604 tones increment in their total supply and demand total balance, and in any forthcoming balances probably won’t either. However, the PBOC had to have purchased it from somewhere. It’s not like the 604 tones could just fall from the sky. It had to have had been supplied through scraps, mining output or disinvestment. Shouldn’t this PBOC demand have been disclosed someplace in the overview of supply and demand? The WGC numbers are missing 2,500 tones already, and now an addition 604 tones needs to be added.

The following is from the GDT’s Q3 report:

In July the People’s Bank of China (PBoC) confirmed that its gold reserves expanded by more than 50% since its last 2009 announcement. Its 1,658t placed China in sixth place on the global rankings. The PBoC has subsequently started to report changes regularly to its gold holdings. An additional 50.1t worth of purchases from July through September have been confirmed.

Notice that the WGC doesn’t mention the 604 tones purchased by the PBOC. However, conveniently stated that the gold reserves of the PBOC expanded by more than 50%. That is another way of stating that 604 tones were not included in the supply and demand total balance by the World Gold Council. In my opinion that is just a vague mirage of the real global supply and demand for gold.

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